Longevity Risk in the United Kingdom

Transcription

1 Institut für Finanz- und Aktuarwissenschaften, Universität Ulm Longevity Risk in the United Kingdom Stephen Richards 20 th July 2005 Copyright c Stephen Richards. All rights reserved. Electronic versions of this and other freely available papers and presentations can be found at

2 Prologue Jennifer Strover collects 12,500 after winning a bet that her motherin-law would live to 100. Slide 1

3 Prologue Jennifer Strover collects 12,500 after winning a bet that her motherin-law would live to 100. She placed a bet of 100 at odds 11 years ago, and a year later staked another 50 at 50-1 odds. Slide 2

4 Prologue Jennifer Strover collects 12,500 after winning a bet that her motherin-law would live to 100. She placed a bet of 100 at odds 11 years ago, and a year later staked another 50 at 50-1 odds. Her mother-in-law, Rosalind, celebrates her birthday at a party paid for with the winnings. Source: BBC News, 4 th November Slide 3

5 Prologue odds The bookmaker used a survival probability of 1%. Slide 4

6 Prologue odds The bookmaker used a survival probability of 1%. He should have used a figure five times greater: 5.48%. Source: Own calculations using GAD interim life table for females in England and Wales. Slide 5

7 Life-expectancy calculations Can actuaries do any better than bookmakers? Slide 6

8 Life-expectancy calculations Can actuaries do any better than bookmakers? They must! Slide 7

9 Life-expectancy calculations Can actuaries do any better than bookmakers? They must! And here s why... Slide 8

10 Financial significance of life expectancy Following its first mortality analysis for a decade, British Aerospace announced a 2.1bn increase in pension liabilities (17%) 1. Slide 9

11 Financial significance of life expectancy Following its first mortality analysis for a decade, British Aerospace announced a 2.1bn increase in pension liabilities (17%) 1. Following the adoption of International Financial Reporting Standards (IFRS), British Airway s net assets fell from 2.7bn to 1.4bn as the pension-scheme deficit came the balance sheet 2. Source: 1 British Aerospace: 2004 preliminary results, page British Airways: Release of Financial Information 2004/5 under IFRS, page 3. Slide 10

12 Retirement life expectancy by socio-economic group I Male life expectancy at age 65 in years II IIIN IIIM IV V Source: ONS Longitudinal Survey. Slide 11

13 Mortality improvements Much analysis of mortality improvements over past five years. Slide 12

15 Mortality improvements Much analysis of mortality improvements over past five years. Mortality improvement defined by Willets (1999): 1 q x,t q x,t 1 Improvements are not constant over time or age. Slide 14

16 Mortality improvements Much analysis of mortality improvements over past five years. Mortality improvement defined by Willets (1999): 1 q x,t q x,t 1 Improvements are not constant over time or age. Improvements strongly related to year of birth, or cohort. Slide 15

17 Mortality improvements Much analysis of mortality improvements over past five years. Mortality improvement defined by Willets (1999): 1 q x,t q x,t 1 Improvements are not constant over time or age. Improvements strongly related to year of birth, or cohort. For more details, see Willets (2004) and Richards and Jones (2004). Slide 16

18 Mortality improvements by year of birth 4 Annual percentage mortality improvement Males Females Year of birth Source: Own calculations with GAD interim life tables for and Slide 17

21 Lung-cancer mortality rates (left) and lifetime consumption of cigarettes (right) by year of birth Lung cancer mortality by age CCTCC by age band Year of birth Year of birth Source: Lee et al (1990), Forey et al (1993) and ONS data. Slide 20

39 Summary and questions Mortality improvements vary by year of birth. Slide 38

40 Summary and questions Mortality improvements vary by year of birth. They are driven by something more than just changes in smoking. Slide 39

41 Summary and questions Mortality improvements vary by year of birth. They are driven by something more than just changes in smoking. The pace of mortality improvement appears to be accelerating. Slide 40

42 Summary and questions Mortality improvements vary by year of birth. They are driven by something more than just changes in smoking. The pace of mortality improvement appears to be accelerating. If so, then reserves for annuities and pensions are understated. Slide 41

43 Summary and questions Mortality improvements vary by year of birth. They are driven by something more than just changes in smoking. The pace of mortality improvement appears to be accelerating. If so, then reserves for annuities and pensions are understated. Cohort effects would also appear to exist outside the U.K. Slide 42

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